You’ve decided to structure your business as a corporation. As you can probably imagine, this decision comes with substantial paperwork. Easily the most important documents required for forming a corporation are the articles of incorporation. Your local secretary of state must approve this legal document in order for your corporation to begin doing business.
So, it’s safe to say that filing articles of incorporation is a pretty big step in making your corporation a reality. In that case, you must make sure the document is filled out correctly. This guide will explain the information required for your articles of incorporation along with how to file the documents.
Since this step is essentially confirming your decision to form a corporation, the first thing you should do before filing is ask yourself: Are you 100% sure that a corporation is the right structure for your business?
C-corporations and S-corporations are the only types of businesses required to file articles of incorporation. Both options are very different from other business entities, like limited liability companies (LLCs) and sole proprietorships.
These two entities are much easier to start and maintain than corporations. There’s less regulations, less paperwork, and the tax systems for both are fairly uncomplicated, especially compared to an S-corp. LLC’s are viewed as the best of both worlds because you get the personal protection of a corporation without all the regulations and paperwork.
That isn’t to say there aren’t numerous major advantages to forming a corporation. You stand to pay significantly lower taxes than the other two entities. It’s just better to know the pros and cons of each entity before making this life-changing decision. In order to be 100% sure, speak to an experienced business lawyer along with an accountant who understands the tax differences between corporations and the other entities.
Despite the pluralization (“Articles” instead of “Article”), articles of incorporation are technically just one document. It is essentially an application to be legally approved as a C-corporation or S-corporation by your home state. The articles contain basic information about your business such as the corporation’s name, address, names of directors, and number of shares. You can file them yourself, with the help of a business lawyer, or through an online legal service.
Choosing a name for your corporation seems like a quick and easy task. But according to legal regulations, your corporation’s name cannot be identical or even similar to another corporation. Regulations also state that the corporation’s name must end with “Inc.,” “Corp.,” or some other corporate identifier.
You can check if your desired name is available through your state’s online database. In most states, their database allows you to reserve a name for a number of days while you prepare to file your articles of corporation. In New York, for example, you can reserve a name for up to 60 days, but you have to send your reservation request by mail.
Name reservations are only necessary, however, if you are not prepared to file your articles of incorporation at that very moment. If your desired name is available and your articles are ready, you can go ahead and file.
Your articles of incorporation will ask you for a “registered agent.” This refers to an individual or company that will receive legal and financial documents for your corporation once it is approved. The main reason you need a registered agent is because owners of corporations are notoriously busy and therefore prone to misplacing important paperwork. Most of these documents can be taken care of by the registered agent without no involvement from the business owner.
You could even say that the registered agent’s primary purpose is to prevent business owners from claiming they shouldn’t be penalized because they were “too busy” to respond to a certain notice.
Though most states allow business owners to name themselves as registered agents, this usually isn’t the best idea. Complying with legal obligations is a major aspect of owning a corporation. Failing to do so can result in serious penalties, even lawsuits. The risk of severe penalties is said to be higher for S-corps, due to their significantly lower tax bills. For example, if an S-corp fails to respond to an annual reporting notice, the state could terminate its legal status.
It is therefore recommended to choose an experienced business lawyer as your registered agent. This individual must have a physical address in your business’s state and be available to receive mail during standard business hours.
Each state has its own requirements for their articles of corporation. Most states, however, ask for identical information. You can check your state’s requirements by visiting the website of your secretary of state or attorney general. Having all of these requirements taken care of before you begin filling out the document will greatly speed up the incorporation process.
Here’s the basic information required for your articles of incorporation:
The legal name of your corporation must not be identical or similar to another corporation in your state. It must also end with a corporate identifier.
This is the address of the physical location in which your business operates. The business’s home state must be the same state that is receiving the articles of incorporation.
Your registered agent will receive legal and financial documents concerning your business by mail.
This is description of your business’s products and services. The level of detail required for this section varies from state to state. Some states require a highly specific description while others only ask for a general overview.
The shareholders of a corporation do not make decisions regarding management and company policy. Such decisions are reserved for the board of directors, the members of which are chosen by shareholders. The board of directors then hires officers (CEO, COO, CFO, etc.) to handle day-to-day operations.
This section, however, is only required in some states. You will be asked for the names and home addresses of each director and officer.
C-corps have no limit for the number of shares they can issue. An S-corp, on the other hand, is only permitted to issue up to 100 shares. This section asks for the number of shares that are available, as opposed to the number of shares that have already been issued. Most corporations do not issue every available share right off the bat, usually because they intend to attract more shareholders.
This section asks for the classes of stock offered by your corporation. C-corps can issue both common and preferred stock, while an S-corp can only issue one class of stock. Hence, an S-corps has just one available answer to this section, whereas a C-corp has two.
Your incorporator is the individual or company that fills out and files your articles of incorporation. Yes, your incorporator can be your registered agent. Their responsibilities are very similar and therefore tend to overlap. But unlike your registered agent, your incorporator actually signs your articles of incorporation and typically plays a larger role in assembling your board of directors. In some cases, the incorporator essentially runs the corporation until the board of directors is fully formed.
There are three ways to fill out and send articles of incorporation to the state. You can file yourself, with the help of a business lawyer, or through an online legal service.
The first option is the fastest and cheapest because in most states, it can be done online. Depending on your state, the filing fee can range from $100 to $300.
The second option is typically only recommended if you have a business lawyer on retainer or your corporation has issued a massive number of shares (over one thousand). Still, it is perfectly understandable to hire a business lawyer solely to be 100% sure that you have filled out the documents correctly. The consultation probably won’t be too expensive because, as you can see, the document isn’t long at all.
Online legal services (the most popular of which being LegalZoom) fill out the document for you by having you complete a questionnaire about your business. As long as you have all the information required for the document, this questionnaire can be finished very quickly. The service will then submit the form for you as well. Most online legal services charge approximately $150, but you also have to pay your state’s filing fee.
Once the document is filled out in its entirety, you should make a copy and save it alongside other important corporate paperwork.
After you file your articles of incorporation, your state will file the document as long as every question was filled out correctly. Your corporation will then be officially registered with your state. A formal certificate of incorporation will arrive via mail approximately 3-6 weeks after the document was filed.
Filing articles of incorporation is the first of several steps required for establishing a corporation. Additional obligations must be followed shortly after filing and/or periodically throughout your career. Here are the next steps to take after filing your articles of corporation:
Initial reports are only required by certain states and, depending on the state, must be filed within one or two months after your official incorporation. It is essentially a condensed version of the document you just filed. Required information includes your business’s location, registered agent, and basic descriptions of your directors and officers.
Most states require new corporations to publish a notice in a local newspaper that, once again, contains much of the same information in your articles of incorporation. This includes your business’s name, address, and number of shares.
Due dates for annual reports vary from state to state. They are usually due the next March or April after your first year in business. Required information depends on your state as well, but they mostly contain financial data for potential shareholders.
Corporate bylaws are the most important legal document of any corporation. Only certain states require corporations to have bylaws in place in order for legal recognition. But even if your state does not have this requirement, corporate bylaws should be drafted and adopted before operations begin. Formal adoption of corporate bylaws shows that your board of directors has officially come to an agreement as to how the company will be run. This includes the responsibilities of shareholders, directors and officers along with the company’s primary goals.
Your first board of directors meeting should take place shortly after your official incorporation. The length of the meeting and all of the board’s decisions must be documented.
Your first shareholder meeting is devoted to issuing shares of stock. Like the previous meeting, all decisions must be documented.
Amidst all these other obligations, corporations must also find the time to handle responsibilities required by any new business. This includes obtaining any required licenses, opening a business bank account, and applying for an employer identification number. That last task is a legal requirement of all US corporations.
Earlier, we explained that the biggest downsides of corporations are paperwork and obligations. Well, there you have it. In order to benefit from the various advantages of corporations, you must adhere to a slew of obligations. Failing to do so can result in severe penalties, like having your corporate status revoked.
You won’t have to worry about penalties as long as you can count on your business lawyer and accountant. These individuals will make sure you stay compliant and never fall behind on taxes. Much like any other major business endeavor, the only truly effective way to steer clear of danger is to surround yourself with the right people.
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